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U.S. stocks soared on Thursday, lifting the Dow Jones Industrial Average and the S&P 500 to their all-time closing highs, boosted by Federal Reserve Chairman Ben Bernanke's dovish speech on Wednesday.
The Dow surged 169.26 points, or 1.11 percent, to 15,460.92 points. The S&P 500 jumped 22.40 points, or 1.36 percent, to 1,675.02 points. The Nasdaq Composite Index leapt 57.54 points, or 1.63 percent, to 3,578.30 points.
After experiencing a June swoon, the U.S. stocks are roaring back again in July. Since the start of this month, the Dow is up 3.7 percent, the S&P 500 up 4.3 percent and the Nasdaq up 5.1 percent, well reversing the more than one percent pull back in June.
The Dow and the S&P 500's last all-time closing highs were set by the end of May. They had a major pull back after Bernanke said in a testimony to Congress on May 22 that the central bank may start scaling back its asset purchases later this year. The market retreated further when Bernanke gave a timetable of the Fed's exit plan on June 19 following the Fed's latest policy meeting, which also triggered broad based sell-off among global markets.
Stocks set record highs on Bernanke speech
Analysts and traders all agree that Thursday's rally was boosted by Bernanke's dovish speak, which gave some reassurance to investors that the Fed is not going to end quantitative easing (QE) any time soon.
The market's rally is "absolutely about the Fed," Kenneth Polcari, director of NYSE Floor Operations at O'Neil Securities, said on CNBC Thursday.
The Fed chief said that highly accommodative monetary policy for the foreseeable future is what's needed in the U.S. economy at the Q&A session following his speech to the National Bureau of Economic Research in Boston. He also said there will not be an automatic increase in interest rate when unemployment hits 6.5 percent.
In fact, the Fed chief did not say anything new compared to what he has been saying, but his emphasis on "highly accommodative" created a psychological effect to placate the market and took the edge off the taper talks.
"The return of upward momentum to the market, I believe, coincides with communication from the Fed that its accommodative policies will remain in place for the foreseeable future," Gregory Keating, managing director of New York-based James E. Coffey Securities Inc, told Xinhua on Thursday.
The policies that have been a boon to stock market will remain in place, he said, adding that the "taper" debate is an ongoing one with the contention that it will happen sometime later this year.
Dow to test 16,000, S&P to hit 1,750
Keating forecast that the market should continue to ride this upward trend in near term and has room to trade higher this year.
The S&P 500 has rebounded some 6.5 percent from its June 24 low, which was oversold at that moment. "I think the market is going to sustain it, if not move a little higher...I don't think it (the rebound) is temporary at all," Keith Bliss, senior vice president and director of sales and marketing at Cuttone & Company, told Xinhua.
"I think we are going to hit a point where we are going to trade sideways for a while. But again, as long as the Fed is making noises, there is no reason to suggest that this is going to sell off and correct itself," Bliss noted, adding that the market remains a "buy" now in a technical perspective.
Jason A. Weisberg, senior trader at Seaport Securities, provided a more optimistic view on the U.S. equity market. He predicted that, "We are going a lot higher. The market is going to close out this year at an all-time high, probably in the 16,000 area if not higher on the Dow and 1,750 or 1,775 on the S&P."
Talking about the Fed's stimulus, Weisberg thinks that less Fed involvement will actually be better for the health of the equity market. "Most long-term investors will tell you that they would rather have less Fed involvement and more of the rules of supply-and-demand that can be applied to the equity market," he said.
Weisberg believes that the U.S. equity market can stand on its own feet even without the help of the Fed's stimulus "at this moment and later on."
Q2 earnings an "X" for equities
The second-quarter earnings season was already kicked off by the slightly better-than-expected earnings from aluminum giant Alcoa on Monday. Its reports triggered off a rally on Wall Street on Tuesday.
But now, all eyes are on the results from J.P. Morgan Chase and Wells Fargo schedule for Friday morning, which will initiate a string of earnings reports from big U.S. banks. Their reports are expected to set the tone for the new earnings season.
Traditionally, when corporate earnings beat market estimates, the stock market reacted positively. But analysts warned that U.S. companies' earnings in the second quarter will get more scrutiny from investors compared to the first quarter in a context of a possible tapering by the Fed. Therefore, the new earnings season still remains an "X" or an unknown factor for the stock market.
Investors are trying to get a clearer picture about how U.S. companies fared in the second quarter with more earnings reports down the road in order to have a better understanding of the U.S. economic recovery.
According to Thomson Reuters data, earnings from S&P 500 companies in the second quarter are expected to grow 2.5 percent from a year ago, while their revenue is expected to increase 1.5 percent. Analysts have greatly lowered the hurdles compared to their April forecast, which predicted a 6.1 percent growth of earnings and 3.7 percent increase in revenue for the second quarter.
"I don't think second-quarter earnings is going to be all that disappointing from expectations. But from a pure absolute basis, they are not going to be good," Bliss said.
"What I look for is topline sales, or gross revenues. Because that is indicative of the health of the economy from the stand point of how much stuff is being sold, how much economic activity is going out there," Bliss added.
Sam Stovall, chief equity strategist of S&P Capital IQ's Equity Research Group, said Thursday on CNBC that their consensus is about a 3-percent year-over-year increase of corporate earnings in the second quarter.
But Stovall also noted that typically the difference between the estimated numbers at the beginning of the reporting period and the actual numbers is about 4 percentage point, which means maybe earnings are getting something closer to 7 percent, an implication that this earnings improvement will continue.
